Alistair Darling warns US counterpart to speed toxic clean-up

Alistair Darling has given a rare warning to his US counterpart Tim Geithner
to do more to rid American banks of their toxic assets.

Tim Geithner: urged to make progress as quickly as possiblePhoto: AP Photo/Susan Walsh

By Edmund Conway in Washington

8:39PM BST 24 Apr 2009

In comments on the fringes of the G7 and G20 summits taking place in Washington on Friday night, the Chancellor said the global economy is "losing time" and that until the US resolves its banking crisis properly the rest of the world economy will not recover.

His remarks come amid concerns that, having announced the public-private deal to cleanse the US banking system of its impaired assets earlier this year, the US Treasury Secretary is struggling to execute his plan.

They also follow a warning from the International Monetary Fund this week that governments are still barely half-way through the process of supporting their banking systems, with Europe in particular lagging behind.

Mr Darling said he had urged Mr Geithner to move faster to dispose of the largely sub-prime related instruments poisoning the US financial system. He said: "I recognise that the US Government is committed to sorting out the American banks' balance sheet problems. I recognise the political difficulty any government has when people ask 'why are you doing all this for these banks?' but the fact is that we need the banking system.

"We need an effective, functioning banking system, and we need to kick-start credit and that means you've got to sort out these toxic assets, so I hope the United States can make progress as fast as it possibly can. It is an absolute imperative."

The remarks underline the scale of the danger the UK and other countries feel is posed by the financial crisis, since it is unusual for a G7 finance minister to make specific remarks on a fellow minister's economy.

Mr Darling added: "If you can't fix the banking system you won't fix the wider economy. And fixing the US economy is as important to the UK as it is to the US because of the sheer size and influence of their economy."

Although he refused to comment on whether the world is through the worst either of the crisis, Mr Darling said: "We have certainly stabilised the banking system... you are starting to see bank lending resume. There is a lot more work to be done."

He is understood to have repeated his warning to European finance ministers in the summit, urging them to face up to the severity of the crisis.

At the end of the G7 meeting ministers released a statement which said that the pace of decline in the global economy had slowed. It said economic activity should start to recover this year, “amid a weak outlook.”